Financial setbacks happen to everyone and recovering can get complicated.
If you are considering declaring bankruptcy, you should know what your options are.
The most common type of bankruptcy, Chapter 7 is also called liquidation bankruptcy because most of your unsecured debt gets forgiven. To file, you must pass what a means test. This will consider your financial status by examining your income, expenses and debt. By filing Chapter 7, you can discharge debt like medical bills, personal loans, credit card debt and income tax arrears.
This type is often used by incorporated businesses and is also referred to as a reorganization bankruptcy. It allows a filer to propose a plan for reorganizing debts. This plan is then voted on by the banks or other institutions that are due money, and if approved, the court confirms the plan. A business may continue to operate when they file a Chapter 11 bankruptcy, as long as it meets the terms of the approved plan.
Chapters 12 and 13
Similar to Chapter 11, these types of bankruptcy also involve the reorganization of debts. Chapter 12 is specifically for farms and fisheries. It allows a plan for restructured payments to be both approved and confirmed, and the agriculture business can continue to operate. Chapter 13 is sometimes called a wage earner’s plan because it is for people with regular incomes to develop a repayment plan.
Learning about the types of bankruptcy can help you determine which one is best suited for you and your circumstances.